In many low-income countries, there is a wedge between the statutory policies on tax compliance and the practice on the ground, especially for the taxation of informal firms. Asymmetric information about the nature of these firms' civic responsibility to pay taxes leaves much discretion to tax collectors and leads to variation in practices and further distrust and confusion among taxpayers and the tax authority. We ran a randomized controlled trial with 424 firms in Lome, Togo, to investigate whether alleviating this informational asymmetry improves tax incidence. We randomly assigned half of the sample to an informational and training treatment about tax procedures and obligations as well as the use of tax revenues to provide public services. Treated firms, who we show are now better informed, participate less in the tax system on the extensive margin with a change in the composition of firms who participated. Fewer low revenue firms paid taxes as would be expected in accordance with the regulations. This positive sorting by firm revenue, not only is welfare enhancing but may, on the net, increase total tax revenues.

The intervention consisted of the provision of information and training about
tax obligations and benefits of taxation to firm owners and society at large. The information included was based on the tax code as well as our interviews with senior tax officials concerning information that they would like these firms to know. Along with information about their tax obligations, the treatment also consisted of what taxes pay for and the cost of these services.

Intervention Start Date

2015-08-01

Intervention End Date

2015-09-15

Primary Outcomes

Primary Outcomes (end points)

1. Tax compliance
2. Attitudes toward taxation

Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)

Secondary Outcomes (explanation)

Experimental Design

Experimental Design

Many of the firms in the informal sector do not have physical addresses. Additionally, Togo does not have a recent firm census that could serve as a sampling frame. We resorted to a sampling method used by the Afrobarometer surveys, which uses a well-designed shoe leather and sampling on the ground. We used the census tracts as enumeration areas. For each enumeration areas, we randomly select a starting point on the map. Four enumerators then go to the nearest junction to the starting point
and choose five businesses in each of the four directions by counting businesses that they encounter on both sides of the streets and selecting every fifth. This first database is then used for the random assignment to the treatment or the control group.

Experimental Design Details

Randomization Method

The randomization was in office by computer following the baseline data collection.

Randomization Unit

The unit of randomization is the firm

Was the treatment clustered?

No

Experiment Characteristics

Sample size: planned number of clusters

424 firms

Sample size: planned number of observations

424 firm owners

Sample size (or number of clusters) by treatment arms

212 firms owners in the treatment group and 212 firm owners in the control group

Minimum detectable effect size for main outcomes (accounting for sample design and clustering)